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Fees - Relative Size

290.220 When the total fees from an audit client represent a


large proportion of the total fees of the firm expressing the
audit opinion, the dependence on that client and concern
about losing the client creates a self-interest or intimidation
threat.
Fees - Relative Size
The significance of the threat will depend on factors such as:

• The operating structure of the firm;


• Whether the firm is well established or new; and
• The significance of the client qualitatively and/or
quantitatively to the firm.
Fees - Relative Size
Safeguards:

• Reducing the dependency on the client;


• External quality control reviews; or
• Consulting a third party, such as a professional regulatory
body or a professional accountant, on key audit judgments.
Fees - Relative Size

290.221 A self-interest or intimidation threat is also created


when the fees generated from an audit client represent a
large proportion of the revenue from an individual partner’s
clients or a large proportion of the revenue of an individual
office of the firm.
Fees - Relative Size
The significance of the threat will depend upon factors such as:

• The significance of the client qualitatively and/or


quantitatively to the partner or office; and
• The extent to which the remuneration of the partner, or the
partners in the office, is dependent upon the fees generated
from the client.
Fees - Relative Size
Safeguards:

• Reducing the dependency on the audit client;


• Having a professional accountant review the work or
otherwise advise as necessary; or
• Regular independent internal or external quality reviews of
the engagement.
Fees - Relative Size
Audit Clients that are Public Interest Entities

290.222 Where an audit client is a public interest entity and, for two cons
ecutive years, the total fees from the client and its related entities (subject
to the considerations in paragraph 290.27) represent more than 15% of t
he total fees received by the firm expressing the opinion on the financial st
atements of the client, the firm shall disclose to those charged with govern
ance of the audit client the fact that the total of such fees represents more
than 15% of the total fees received by the firm, and discuss which of the s
afeguards it will apply to reduce the threat to an acceptable level, and appl
y the selected safeguard.
Fees - Relative Size
safeguards

• a professional accountant, who is not a member of the firm


expressing the opinion on the financial statements,
performing an engagement quality control review of that
engagement or
• a professional regulatory body performs a review of that
engagement that is equivalent to an engagement quality
control review
Fees - Overdue

290.223 A self-interest threat may be created if fees due from an


audit client remain unpaid for a long time, especially if a significant
part is not paid before the issue of the audit report for the
following year. Generally the firm is expected to require payment of
such fees before such audit report is issued. If fees remain unpaid
after the report has been issued, the existence and significance of
any threat shall be evaluated and safeguards applied when
necessary to eliminate the threat or reduce it to an acceptable level
.
Fees - Overdue
safeguard:

having an additional professional accountant who did not


take part in the audit engagement provide advice or review
the work performed.
Contingent Fees

290.224 Contingent fees are fees calculated on a


predetermined basis relating to the outcome of a transaction
or the result of the services performed by the firm.
Contingent Fees
significance of any threats will depend on factors such as:

• The range of possible fee amounts;


• Whether an appropriate authority determines the outcome
of the matter upon which the contingent fee will be
determined;
• The nature of the service; and
• The effect of the event or transaction on the financial
statements.
Contingent Fees
safeguards include:

• Having a professional accountant review the relevant audit


work or otherwise advise as necessary; or
• Using professionals who are not members of the audit team
to perform the non-assurance service.
Contingent Fees
The threat created would be so significant that no safeguards could reduce
the threat to an acceptable level if:

(a)The fee is charged by the firm expressing the opinion on the financial
statements and the fee is material or expected to be material to that
firm;
(b)The fee is charged by a network firm that participates in a significant
part of the audit and the fee is material or expected to be material to
that firm; or
(c)The outcome of the non-assurance service, and therefore the amount
of the fee, is dependent on a future or contemporary judgment related
to the audit of a material amount in the financial statements.
Compensation and Evaluation Policies

290.228 A self-interest threat is created when a member of


the audit team is evaluated on or compensated for selling
non-assurance services to that audit client.
Compensation and Evaluation Policies
The significance of the threat will depend on:

• The proportion of the individual’s compensation or


performance evaluation that is based on the sale of such
services;
• The role of the individual on the audit team; and
• Whether promotion decisions are influenced by the sale of
such services.
Compensation and Evaluation Policies
safeguards include:

• Removing such members from the audit team; or


• Having a professional accountant review the work of the
member of the audit team.
Compensation and Evaluation Policies

A key audit partner shall not be evaluated on or compensated


based on that partner’s success in selling non-assurance
services to the partner’s audit client. This is not intended to
prohibit normal profit-sharing arrangements between
partners of a firm.
Gifts and Hospitality

 A professional accountant in public practice, or an immediate or


close family member, may be offered gifts and hospitality from a
client. Such an offer may create threats to compliance with the fundament
al principles.
 self-interest
 familiarity threat
 intimidation threat
Actual or Threatened Litigation

 The relationship between client management and the members of the


assurance team must be characterized by complete candor and full
disclosure regarding all aspects of a client’s business operations

 When litigation takes place, or appears likely, between the firm or a


member of the assurance team and the assurance client, self-interest
and intimidation threats are created.
Actual or Threatened Litigation
The significance of the threats depend on:

• The materiality of the litigation


• Whether the litigation relates to a prior assurance engagement.
Actual or Threatened Litigation
Safeguards:

 If the litigation involves a member of the assurance team,


removing that individual from the assurance team;

 Having a professional review the work performed.

 Withdraw from, or decline, the assurance engagement.


Reports that Include a Restriction on Use and Distribution
However, in certain circumstances involving audit engagements where the report
includes a restriction on use and distribution, and provided the conditions described in
paragraphs 290.501 to 290.502 are met, the independence requirements in this section
may be modified as provided in paragraphs 290.505 to 290.514

(a) that is intended to provide a conclusion in positive or negative form that the financial
statements are prepared in all material respect

(b) where the audit report includes a restriction on use and distribution.
INDEPENDENCE-OTHER ASSURANCE
ENGAGEMENTS CONTENTS
Structure of Section:

291.1 This section addresses independence requirements for


assurance engagements that are not audit or review engagements.
In certain circumstances involving assurance engagements
where the assurance report includes a restriction on use and
distribution and provided certain conditions are met, the
independence requirements in this section may be modified as
provided in paragraphs 291.21 to 291.27.
291.6 The conceptual framework approach shall be applied
by professional accountants to:

(a) Identify threats to independence;


(b) Evaluate the significance of the threats identified; and
(c) Apply safeguards when necessary to eliminate the threats or reduce
them to an acceptable level.
291.9 Deciding whether to accept or continue an engagement, or
whether a particular individual may be a member of the assurance team.

• a firm shall identify and evaluate any threats to independence


• determine whether safeguards are available to eliminate the threats or
reduce them to an acceptable level.
• the firm shall determine whether any existing safeguards will continue
to be effective to eliminate the threats or reduce them to an acceptable
level or whether other safeguards will need to be applied or whether
the engagement needs to be terminated
• the firm shall evaluate the significance of the threat in accordance with
the conceptual framework approach.
291.11

This section, in most cases, does not prescribe the specific responsibility
of individuals within the firm for actions related to independence because
responsibility may differ depending on the size, structure and
organization of a firm.
Assurance Engagements
291.12 As further explained in the Assurance Framework, in an assurance
engagement the professional accountant in public practice expresses a
conclusion designed to enhance the degree of confidence of the intended
users (other than the responsible party) about the outcome of the
evaluation or measurement of a subject matter against criteria.

291.13 The outcome of the evaluation or measurement of a subject matter


is the information that results from applying the criteria to the subject
matter. The term “subject matter information” is used to mean the
outcome of the evaluation or measurement of a subject matter
Subject Matter Subject Matter
Information
Financial performance historical or prospective recognition,
or conditions financial position, financial measurement,
performance and cash flows presentation and
disclosure represented
in financial statements.
Non-financial performance of an entity key indicators of
performance or efficiency and
conditions effectiveness.
Physical characteristics capacity of a facility specifications document
Systems and processes entity’s internal control or IT assertion about
system effectiveness
Behavior corporate governance, statement of compliance
compliance with regulation, or a statement of
human resource practices effectiveness
Assurance Engagements

Criteria are the benchmarks used to evaluate or measure the


subject matter including, where relevant, benchmarks for
presentation and disclosure
Assurance Engagements

subject matter: internal control

Criteria: applying a framework for evaluating the effectiveness of internal


control, such as COSO6 or CoCo7

subject matter information: assertion about the effectiveness of internal


control
Assurance Engagements

291.14 Assurance engagements may be:


a) assertion-based or
b) direct reporting

Parties involved in assurance engagements:


a) a professional accountant in public practice,
b) a responsible party and
c) intended users
Assertion-based assurance engagement

291.15 In an assertion-based assurance engagement, the evaluation or


measurement of the subject matter is performed by the responsible party,
and the subject matter information is in the form of an assertion by the
responsible party that is made available to the intended users.

(a) directors or officers, and


(b) individuals at the client in a position to exert significant influence over
the subject matter information.
TAPOS
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Reports that Include a Restriction on Use and Distribution

290.501 (a) are knowledgeable as to the purpose and limitations of the


report, and
(b) explicitly agree to the application of the modified
independence requirements

290.502 The firm shall communicate with the intended users regarding
the independence requirements that are to be applied with
respect to the provision of the audit engagement
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Reports that Include a Restriction on Use and Distribution

Public Interest Entities


290.505 When the conditions set out in paragraphs 290.500 to 290.502
are met, it is not necessary to apply the additional requirements
in paragraphs 290.100 to 290.232 that apply to audit
engagements for public interest entities
Reports that Include a Restriction on Use and Distribution

Related Entities
290.506 When the conditions set out in paragraphs 290.500 to 290.502 are met
references to audit client do not include its related entities.
Reports that Include a Restriction on Use and Distribution

Networks and Network Firms


290.507 When the conditions set out in paragraphs 290.500 to 290.502
are met, reference to the firm does not include network firms.
Reports that Include a Restriction on Use and Distribution

Financial Interests, Loans and Guarantees, Close Business Relationships


and Family and Personal Relationships

290.508 When the conditions set out in paragraphs 290.500 to 290.502


are met, the relevant provisions set out in paragraphs 290.102 to
290.145 apply only to the members of the engagement team, their
immediate family members and close family members.
Reports that Include a Restriction on Use and Distribution

290.509 In addition, a determination shall be made as to whether threats


to independence are created by interests and relationships, as
described in paragraphs 290.102 to 290.145, between the audit
client and the following members of the audit team:

(a)Those who provide consultation regarding technical or industry


specific issues, transactions or events; and

(b)Those who provide quality control for the engagement, including


those who perform the engagement quality control review.
Reports that Include a Restriction on Use and Distribution

290.510 An evaluation shall also be made of the significance of any threats


that the engagement team has reason to believe are created by
financial interests in the audit client held by individuals, as
described in paragraphs 290.108 to 290.111 and paragraphs
290.113 to 290.115.

290.511 Where a threat to independence is not at an acceptable level,


safeguards shall be applied to eliminate the threat or reduce it to
an acceptable level
Reports that Include a Restriction on Use and Distribution

290.512 In applying the provisions set out in paragraphs 290.106 and


290.115 to interests of the firm, if the firm has a material
financial interest, whether direct or indirect, in the audit client,
the self-interest threat created would be so significant that no
safeguards could reduce the threat to an acceptable level.
Accordingly, the firm shall not have such financial interest.
Reports that Include a Restriction on Use and Distribution
Employment with an Audit Client
290.513 An evaluation shall be made of the significance of any threats from
any employment relationships as described in paragraphs 290.134 to 290.13
8. Where a threat exists that is not at an acceptable level, safeguards shall be
applied to eliminate the threat or reduce it to an acceptable level

• Modifying the audit plan;


• Assigning individuals to the audit team who have sufficient experience in
relation to the individual who has joined the client; or
• Having a professional accountant review the work of the former member
of the audit team.
Reports that Include a Restriction on Use and Distribution

Provision of Non-Assurance Services


290.514 If the firm conducts an engagement to issue a restricted use and
distribution report for an audit client and provides a non-assurance
service to the audit client, the provisions of paragraphs 290.156 to
290.232 shall be complied with, subject to paragraphs 290.504 to
290.507.
Reports that Include a Restriction on Use and Distribution

290.503 If the firm also issues an audit report that does not include a
restriction on use and distribution for the same client, the provisions
of paragraphs 290.500 to 290.514 do not change the requirement to
apply the provisions of paragraphs 290.1 to 290.232 to that audit
engagement.
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